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A year ago
Your firm currently has $250 million in debt outstanding with an 8% interest rate.  The terms of the loan require the firm to repay $50 million of the balance each year.  Suppose that the marginal corporate tax rate is 35% and that the interest tax shields have the same risk as the loan.  What is the present value of the interest tax shields from this debt?
Textbook 

Corporate Finance: The Core

Edition: 4th
Authors:
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A year ago
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Year   Beginning Balance   Interest Expense    EndingBalance    Tax Shield   PV of Tax Shield
1   250   20   200   7   6.4815
2   200   16   150   5.6   4.8011
3   150   12   100   4.2   3.3341
4   100   8   50   2.8   2.0581
5   50   4   0   1.4   0.9528
            Total =   17.6276

Interest expense = beginning balance × .08
Tax shield = interest expense × .35
PV of tax shield = tax shield/(1.08)n
This verified answer contains over 140 words.
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wrote...
A year ago
You took a load off my back, thanks for answering correctly
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